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RE: League Joins Challenge to Verizon’s Claimed Exemption from Business PersonalProperty Tax

Dear Mayor:

On Wednesday, November 25, the League filed, with the Tax Court, a Motion for Leave to Appear as Amicus Curiae in the case of “Verizon – New Jersey, Inc. vs Borough of Hopewell.” At issue is Verizon’s contention that it is no longer subject to personal property taxes, relating to the profitable use of the public’s rights of way, in Hopewell, and numerous other municipalities.
Before 1966, municipalities assessed and collected taxes on Business Personal Property. In that year, the Legislature made the State the collection agent for most of these taxes (while promising municipal ‘hold harmless’ funding on this). However, municipalities retained the right to tax the personal property of telephone and telegraph companies that paid the Public Utility Gross Receipts and Franchise Taxes (PUGRAFT).

Following the AT&T divestiture, the Legislature, in 1989, exempted all but ‘local exchange companies’ from the PUGRAFT, which also exempted other telecommunications companies from local personal property taxes.

In 1997, with deregulation and in anticipation of growing competition in the telecommunications (and energy) industry, the Legislature repealed the PUGRAFT, and replaced it by applying the Corporation Business Tax to the utilities. Local exchange companies, such as Verizon, which were subject to the PUGRAFT on April 1, 1997, continued to be subject to local business personal property taxes. Because of the ‘as of April 1, 1997’ standard, new entrants into the local exchange market were exempt from local personal property taxes. The legislation also changed the definition of ‘local exchange telephone company,’ inserting a ‘51% of dial tone service’ standard.

Technological changes in telecommunications have brought increased competition to the industry. In this new environment, Verizon has looked to cut its costs and ‘level the competitive playing field.’

To effect the cost cutting, Verizon has used the ‘51%’ language to claim exemption from local business personal property taxes in those municipalities where it claims to no longer supply dial tone to a majority of the telephone market. Its interpretation of the ‘51%’ language, however, has been disputed by the non-partisan Office of Legislative Services, Hopewell and the League.

League Counsel Joel Shain, Esq. advises that Judge Menyuk has scheduled the return date on our Motion for January 8, 2010. Verizon is opposing the League’s participation. Our brief in support of the Motion is due on or before December 18. Verizon’s brief is due on or before December 31, as is Hopewell’s. The courts view amicus applications favorably and the Motion to participate will likely be granted. On January 8, the Court will establish a briefing schedule on the substantive issues.

We will keep you informed on this matter, as it proceeds. If you have any questions, contact Jon Moran at 609-695-3481, ext. 121.